Rental income received by a natural person is taxable income, the expenses of which are in principle deductible for tax purposes. However, expenses considered as living expenses are not deductible.
What the General Rule for You?
As a general rule, rental income is income from the so-called personal source of income, in which case the Income Tax Act applies for taxation. However, rental income may also be included in business income, in which case the Act on Taxation of Business Income applies to the calculation of taxable income. In addition, the Agricultural Income Tax Act contains provisions on rental income to be considered as agricultural income.
The content of this guide focuses on rental activities that are subject to the Income Tax Act. For deductions, the focus is on the cost of renting an apartment or property. However, what is stated in the instructions may also be applied to the rental of other property. For that you need to calculate estimated taxes and in this matter you can take the best use of the tax calculator.
This guide does not deal with VAT
According to the Value Added Tax Act, the transfer of, among other things, a land lease right, a room lease right or another comparable right to real estate is not a subject to VAT. However, rental activities may be accommodation activities subject to VAT pursuant to Section 29 (3) of the AVL. In addition, the transferor of the right to use the property may apply for VAT. These topics are described in more detail in the Tax Administration’s instructions on the taxation of accommodation activities and applying for the transfer of the right to use the property as a VAT payer.
Basis and quality of rental income
Rental income is compensation for the transfer of the right to use an object. The object of the rental is typically an apartment or real estate, but the object can also be, for example, a vehicle or a tool.
Rental income can also be paid other than in cash. The amount of income is the fair value of the asset or other consideration given (for example, work) at that time.
Tax year of rental income
According to Income Tax Act, income is careful to be income for the tax year and there it was reserved, entered in the taxpayer’s account or then obtained. The same pay-as-you-go provision also applies to farmers who are required to take notes. Instead, the provisions of the Accounting Act and the Business Income Tax Act apply to the accrual of rental income included in business income.
If, on the foundation of the lease, the tenant makes a renovation at his own expense which increases the value of the property, the costs paid by the tenant for the repair are the lessor’s taxable income in the year in which the costs are paid. The amount recognized as income is treated by the Lessor as renovation costs, which are either added to the acquisition cost or deducted as straight-line depreciation as described below.